SIE (Securities Industry Essentials) Practice Exam

The call provision of a bond typically specifies:

1. Maturity date and interest rate

2. Collateral and credit rating

3. Call date and call price

4. Covenants and restrictions

The correct answer is: Call date and call price

The call provision of a bond is a critical feature that allows the issuer to redeem the bond before its maturity date under specified conditions. This option provides the issuer with flexibility, particularly when interest rates decline after the bond is issued, enabling them to refinance at lower rates. The correct answer highlights that the call provision typically specifies both the call date, which is the date the issuer can choose to redeem the bond, and the call price, which is the price at which the bond will be redeemed. Understanding these components is essential for investors, as they influence the bond’s yield and overall investment risk. In contrast, other aspects such as the maturity date and interest rate pertain to the bond's terms at issuance but do not relate specifically to the call provision. Similarly, collateral and credit ratings are more concerned with the bond's security and issuer's credit quality than with the callability of the bond. Finally, covenants and restrictions are related to the conditions the issuer must adhere to during the bond's term, but they do not directly define the parameters of the call provision.